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The Endowment Diary

The Endowment Diary

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The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Thursday, March 13, 2008

The Endowment Rip Off

The Endowment Rip Off

Underlying funds held by insurance companies have risen by an average of 6% over the last year. This in theory should be good news for the millions of people holding useless, underperforming with-profits endowment policies.

Unfortunately, as with all endowment policy matters, what at first appears to be an opportunity for the hapless policy holder to earn a respectable return turns out to be an opportunity for the life insurance companies to take "a dip".

The biggest and the "best" of Britain's life insurers have in fact reduced their payouts by 3% last year (remember the funds they "manage" on our behalf have actually risen by 6%).

This cut in payouts has cost the endowment policy holders around £8BN, according to The Times.

The Times quote Tom McPhail, at Hargreaves Lansdown:

"Stock markets have risen substantially since the end of the bear market in 2003, but final payouts keep on falling.

It just doesn't add up."

That's putting it politely!

We would be better off having "invested" our money in a "bog standard" savings account over the last 10 years.

A 10 year endowment policy from Friends Provident has returned a mind numbingly small 0.9% a year, compared with 1.6% from a 90 day deposit account.

Prudential's fund grew by 7.2% last year. However, a typical maturing £50-a-month, 25 year Prudential endowment policy will now pay out £44,515. This represents a 5% cut on the £46,695 paid out on an equivalent plan that matured in 2007.

A typical 25 year Commercial Union endowment policy will pay out £40,737. This is 7% down on the £43,697 paid out on an equivalent plan last year.

Why is that the insurers are able to take "a dip", and not pass on the increased returns to their policy holders?

Simple!

Because they can!

Insurers have discretion over how much of the gain they pass on, therefore they choose to keep the money for themselves.

A report for the trade body Actuarial Profession expects payouts to continue to fall by 3% per annum until 2020.

We are being ripped off by the insurance companies, and no one in the regulatory authorities is doing anything about it.